Trump Picks Wall Street Over Main Street

President Trump signing an executive order in the Oval Office on Friday.CreditAl Drago/The New York Times

By Mike Konczal

Feb. 4, 2017

President Trump fired the first round in his war against financial regulations by signing two executive orders on Friday.

The first calls for the Treasury secretary to conduct a review over the next 120 days of regulations stemming from the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The second calls for a review of the Department of Labor’s “fiduciary rule,” which requires investment professionals to act in the best interest of their clients, rather than seek the highest profits for themselves, when providing retirement advice. It is currently set to start in April.

Though they don’t do too much by themselves to roll back these reforms, the directives do offer important details on how Mr. Trump will approach the financial industry in the next four years — and provide three reasons that people on Main Street should be scared about how Mr. Trump will help Wall Street.

The first is that President Trump, contrary to the hopes of many, has no intention of getting tough with finance. During the election campaign, Mr. Trump benefited from not having a political record. Though he was clear on repealing the Dodd-Frank law, many people believed that he would take alternative actions to strengthen financial regulation. Reinstating a modern Glass-Steagall, the Depression-era law that separated commercial banking from investment banking — a reinstatement championed by, among others, Senator Bernie Sanders — was part of the Republican platform, and Mr. Trump talked about the unfairness of hedge-fund salaries.

That this is how he starts his tenure should confirm that Mr. Trump has no intention of taking on Wall Street. For people who follow these issues, this was noticeable during the campaign and transition, and Friday’s action will make it crystal clear for everyone else. His first executive order in the area of finance and Wall Street could have focused on anything, but there’s nothing in his orders that indicates, in any way, that he wants to take on financial reform more aggressively than President Barack Obama did (or than Hillary Clinton would have).

The executive order mentions worries about the international competitiveness of our banks, but nothing about whether there’s sufficient checks against fraud and corruption. It takes the time to admonish regulators, but shows no dismay about the size, concentration or power of Wall Street.

People hoping Mr. Trump would upset, rather than restore, global financial capitalism are in for a rude awakening.

Second, while Mr. Trump wants to repeal the fiduciary rule, he appears to have no interest in a replacement for it. Though Republicans have yet to come up with a fleshed-out Affordable Care Act replacement, the promise that they will have a superior alternative has been central to their pitch. But President Trump seems happy to simply let the industry revert to a regulatory landscape that’s decades old, that functionally was mostly the same as it was in 1975, and that doesn’t reflect the urgency and latest wisdom of helping people save now.

It will be hard to repeal the fiduciary rule through executive action, because Department of Labor officials took the time to carefully construct this requirement, vetting thousands of comments over years. We should hope Mr. Trump fails here, because it is an important rule. The Council of Economic Advisers estimated that it would benefit consumers to the tune of $17 billion a year.

It’s mildly surprising because the fiduciary rule is an elegant way to deal with a serious problem for everyday Americans using an approach conservatives should appreciate. The government sets an ethical norm — similar to the fiduciary rule, simply a code of conduct for investment professionals — one that has existed from the Code of Hammurabi through the Judeo-Christian tradition and, a bonus for the right, centuries of common law, for private conduct. People are then empowered to manage their investments against the backdrop of a norm guiding this relationship.

Third, rather than meet with regulators, small businesses or community banks, Mr. Trump met with the titans of Wall Street before announcing the directives.

For all the talk of the “forgotten man,” conservatives and Mr. Trump will approach attacking Dodd-Frank as a straightforward list of priorities from the most powerful heights of the financial industry. That the fiduciary rule, rather than any of the other things Dodd-Frank does, is President Trump’s first target demonstrates that the administration is giving priority to the donor class, which has obsessed about the rule for years.

You can see this in the way administration officials are talking about their approach. President Trump’s National Economic Council director, Gary D. Cohn, has said that banks have too high capital requirements and are being forced to do too much to prepare for failure, and has hinted that future executive orders would target these reforms. He justifies this argument by describing his recent experiences as president of Goldman Sachs. It’s no wonder financial stocks have been soaring since Mr. Trump was elected. Voters who hoped he would “drain the swamp” and upset the elite are in for a big surprise.

There will also be a lot of discussion by the Trump administration about Dodd-Frank failing to end “too big to fail” and about credit drying up for businesses. This is impossible to find in the data. Surveys of small businesses and loan officers don’t find that Dodd-Frank has killed access to credit, and we don’t see it in the aggregate lending data either.

With the help of Dodd-Frank, there’s been significant progress made toward ensuring that a systemically risky financial institution can be wound down. Mr. Trump could have taken actions to push reform further.